Fountains future is murkier than ever

Posted on February 27th, 2012

Boatbuilder files for bankruptcy for the second time in three years, but the government objects

When Fountain Powerboats emerged from Chapter 11 bankruptcy in 2010, company officials and namesake founder Reggie Fountain were confident that the boatbuilder would find its footing and again become a success.

Two years later, Fountain and its affiliates again have filed for Chapter 11 protection, and the famed boat companys fate is once more in flux.

Fountain Powerboats, along with numerous other affiliated parties, filed Chapter 11 papers Jan. 18 for the second time in less than three years. The filing was recorded with the bankruptcy court in the Southern District of Florida in West Palm Beach. The company lists more than $53 million in liabilities and less than $50,000 in assets, according to court documents.

A total of $53,605,987.16 is owed to lender First Capital, according to the filing. No additional creditors are listed in the initial bankruptcy filing. A creditors meeting was to be held Feb. 13.

Since that initial filing, however, a United States trustee has filed a motion to dismiss the bankruptcy case or, as an alternative, appoint a Chapter 11 trustee.

The motion, filed Feb. 3 by U.S. trustee Donald Walton of Miami, questions whether Ronald Glass, who had been appointed temporary receiver in North Carolina, had the jurisdiction to file the Chapter 11 petitions.

A North Carolina Business Court judge appointed Glass a temporary receiver last October after the filing of a First Capital lawsuit against Fountain Powerboats and other defendants. First Capital is seeking $61.04 million in damages from Fountain Powerboats and other entities for the borrower defendants  breach of loan agreements, according to documents filed in the North Carolina court.

Walton, in his federal court motion, says Glass did not seek permission from the North Carolina state court to file the Chapter 11 petitions. He also says that after the petition was filed the North Carolina court said it no longer had jurisdiction over Fountain and the other entities involved.

The United States trustee does not know why the receiver placed these entities into Chapter 11. It is clear, however, that once the petitions for relief were filed the North Carolina state court that entered the order appointing temporary receiver no longer has jurisdiction over these entities. Therefore, the receiver is no longer bound by North Carolina law, Walton says in his motion.

The receiver not only no longer has to report and be accountable to the North Carolina state court, he also no longer [has] a fiduciary responsibility to any party, Walton added. He cannot be removed by any board of directors or shareholders because the state court took away their ability to act. As such, the receiver has free rein to take actions far in excess of the authority given to him before the bankruptcy petitions were filed, such as liquidating the estates.

Glass did not respond to several requests by Soundings Trade Only for comment.

Walton asked for an evidentiary hearing on his motion for Feb. 21, the day the court has scheduled a hearing on another motion to dismiss the Chapter 11 petitions, which was filed by Joseph Wortley. As of press time, no decisions had been made public.

According to Waltons motion, the ownership of Fountain, and the related entities, breaks down like this:

After Fountain Powerboats filed for bankruptcy in 2009, Liberty Associates and Fountain filed a joint reorganization plan and Liberty acquired the company. Reggie Fountain was initially retained as CEO, but parted ways with the new owners at the end of 2010.

Last year, Reggie Fountain sued his former company for money he says is due him, as well as trophies and pictures from his racing days. Court documents Fountain filed also contain numerous allegations of past improper business dealings by Liberty CEO Bill Gates and others who were involved with the company.

Fountain Powerboats filed counterclaims against Reggie Fountain, alleging that he took company property, as well as trade secrets, when he left the company. Fountain has repeatedly denied those allegations and says there are no trade secrets at Fountain.